Fourth-quarter earnings were largely positive for the US-listed stocks covered by Morningstar analysts. However, some stocks saw their
Software stocks were hit especially hard as concerns that artificial intelligence could disrupt the industry continued to ripple through markets. Four of the five companies with the largest fair value reductions are software names.
Among the 835 stocks on Morningstar’s coverage list, 34 (4.1%) had their fair value estimates cut by a meaningful 10.0% or more. That’s above the 10-year average of 3.4% but slightly below the third quarter’s 4.4%. On average, fair value estimates rose by 3.3% during the fourth-quarter earnings season, above the third quarter’s 2.5% increase.
Stocks with the Largest Fair Value Estimate Cuts
- FMC FMC: $25 from $60
- Rapid7 RPD: $10 from $22
- Workday WDAY: $170 from $300
- Varonis Systems VRNS: $28 from $47
- Paycom Software PAYC: $130 from $208
A large cut or increase in a fair value estimate may signal that a company’s fortunes are changing. However, it’s important to consider how a stock trades compared with that estimate. Four of the five stocks with the largest fair value cuts have Morningstar Ratings of 4 stars, meaning our analysts think they’re attractively priced for long-term investors. This holds even after their big valuation cuts. Paycom has a 3-star rating, indicating our analysts think it’s fairly valued.
Here’s what Morningstar’s analysts have to say about these stocks.
FMC
- : $25.00Fair Value Estimate
- Fair Value Decrease: 58%
- : NarrowEconomic Moat
- : ★★★★Morningstar Rating
“FMC’s fourth-quarter earnings included 2026 guidance well below consensus and management’s strategic plan to reduce debt through potential asset sales or licensing agreements. FMC may also pursue a sale of the company.
“FMC has been struggling due to patent expirations in its diamides insecticides, which we estimate accounted for around 35% of revenue in 2025. This will lead to a double-digit profit decline in 2026 as FMC has to cut prices and its new products are seeing a delayed launch.
“We reduce our fair value estimate for narrow-moat FMC to $25 from $60. The reduction is due to our lower near-term outlook as well as far slower growth from FMC’s new premium products than we had previously forecast. In short, our thesis proved incorrect on the company’s turnaround.”
—Seth Goldstein, senior equity analyst
Investors can find more of Goldstein’s take on FMC here.
Rapid7
- : $10.00Fair Value Estimate
- Fair Value Decrease: 55%
- : NoneEconomic Moat
- : ★★★★Morningstar Rating
“Rapid7 reported mixed results to close out 2025. The firm’s fourth-quarter sales grew 0.5% to $217 million, and adjusted operating margins contracted 500 basis points to 14.0%. The firm’s shares continue to face pressure and are down more than 73% in the last year.
“We attribute Rapid7’s lackluster financial results over the last few quarters to an increasing trend of vendor consolidation, with the firm’s core vulnerability management business facing secular decline as VM gets bundled into larger security platforms.
“We cut our fair value estimate to $10 from $22 as we push our forward-looking estimates down, in part owing to management’s own gloomy 2026 forecast. We see Rapid7 as poorly positioned against two secular trends within cybersecurity. One, the firm loses as customers consolidate spending on larger platforms. Two, as artificial intelligence-driven security operations gain steam, we’d expect the firm’s MDR business to also come under pressure.”
—Malik Ahmed Khan, senior equity analyst
Read Khan’s full take on Rapid7 here.
Workday
- : $170.00Fair Value Estimate
- Fair Value Decrease: 43%
- : WideEconomic Moat
- : ★★★★Morningstar Rating
“Workday delivered solid fourth-quarter revenue growth of 15% and non-GAAP operating margin of 31%. However, fiscal 2027 subscription revenue guidance of 13% and non-GAAP operating margin guidance of 30% both undershoot investor expectations, triggering a 9% after-hours selloff.
“Workday is taking a risk by doubling down on artificial intelligence investments that can alter its consistent margin expansion. We believe establishing a successful sales motion to upsell agentic AI products can be a real challenge amid a volatile enterprise IT spending environment.
“We cut our fair value estimate for wide-moat Workday to $170 per share from $300. We doubt Workday’s AI solutions can find buyers anytime soon and therefore removed all AI-related revenue tailwind from our base-case forecast. Despite the fair value change, shares remain undervalued.”
—Luke Yang, equity analyst
Take a deeper dive into Yang’s outlook for Workday.
Varonis
- : $28.00Fair Value Estimate
- Fair Value Decrease: 40%
- : NoneEconomic Moat
- : ★★★★Morningstar Rating
“Varonis reported mixed fourth-quarter results that included sales of $173 million, up 9%, and adjusted operating margins of 3%, down 700 basis points. The firm’s 2026 ARR, or annual recurring revenue, outlook guides to a slowdown in growth, which led to the after-hours sell-off in shares.
“As a reminder to investors, Varonis has been undergoing a cloud transition as it shifts away from on-prem licenses to cloud-only delivery of its solutions. In order to expedite its transition, Varonis announced an end-of-life of its on-prem products in 2026.
“We are reducing our fair value estimate for no-moat Varonis to $28 from $47. This material reduction is driven primarily by a sharp decrease in our sales estimates for the firm, as the competitive landscape is becoming more challenging for smaller security firms such as Varonis.”
—Malik Ahmed Khan
The rest of Khan’s take on Varonis can be found here.
Paycom
- : $130.00Fair Value Estimate
- Fair Value Decrease: 38%
- : NarrowEconomic Moat
- : ★★★Morningstar Rating
“Paycom reported fourth-quarter revenue growth of 10%, with adjusted earnings per share up 2%. The 2026 revenue growth outlook was for 6%-7% growth. Fears of AI disruption are dominating the narrative around all software stocks, and these fears are about the future business model, not current results, so we didn’t expect the current quarter to materially sway the narrative just yet. That said, the 2026 outlook largely met expectations.
“To account for developing risks posed by AI, we lower our fair value estimate to $130 per share from $208 and lift our Morningstar Uncertainty Rating to Very High from High. We didn’t materially change our 2026 forecast, but we lower our growth expectations in the years after 2026 to reflect a higher likelihood of increased competition and lower seat counts due to clients seeing AI-driven efficiencies.”
—Eric Compton, director of equity research
Compton has more about Paycom stock here.
